With the rise of new regional and global powers (BRIC or so called Brazil, Russia, India and China) coupled with Washington recent war fiasco and financial crisis, had worsen the outlook of the Americas future. But how serious of this Doomsday scenario? Is this decline temporary or reversible?
In the incoming year of 2012 the United States had 1.34 trillion dollar to play with. And currently have 553billion dollars allocated for the defence budget. The US military is the major domestic employer. The entire defence industry turns in billion of billion of dollar every year, and the link between the strength American economy and the strength of American military can not be ignored. What exactly US is afraid of ? why they have this so called the carrier battle group?.
A carrier battle group consist of an aircraft carrier, cruisers, destroyers, scores of combat aircraft, a multitude of short and long range missile weapons. It is so large that the entire fleet requires ten thousand military personnel to operate. And the US had a dozen of these battle groups of this size, no other nation on earth has one they absolutely insuring America is safe. The world is so complex there are so many threats and challenges to their security. They need to go out to defend their country and met these challenges. But for most, the idea to got out and meet these challenges is precisely the problem. If we look at the period since 1990 there are periods of enormous and continuing American military activism in all part of the world, in all kind of purposes. And some Americans find it troubling.
In the late-2000s financial crisis (often called the global recession, global financial crisis or the credit crunch) is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. This financial crisis was triggered by a complex interplay of valuation and liquidity problems in the United States banking system in 2008. The bursting of the U.S. housing bubble, that peaked in 2007 which causes the values of securities tied to U.S. real estate pricing to plummet, and damaging some financial institutions globally. The questions regarding bank solvency and the declines in credit availability, which damaged investor confidence had an impact on global stock markets that suffered large losses during 2008 and early 2009.
These resulted in the collapse of large financial institutions, the bailout of banks by national governments and downturns in stock markets around the world. Many areas in the U.S. with housing market had suffered, resulting in numerous evictions, foreclosures and prolonged unemployment. These contributed to the failure of key businesses and the declines in consumer wealth estimated by the trillions of U.S. dollars, with a significant decline in economic activity, which lead to a severe global economic recession in 2008.
Economies worldwide slowed during these period. As credit tightened and international trade declined governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts. Although there have been aftershocks, the financial crisis itself ended sometime between late 2008 and mid 2009. As the US flirted with the prospect of default and Standard & Poor’s downgraded the country’s credit rating, stock markets and currencies have plunged, risen, plunged and then risen again.
Investment bank JP Morgan recognised as much in responding to questions on the market’s direction by noting only that, “It will fluctuate.” However, even if one cannot be precisely sure of where they are heading. History offers some insight as to the nature of their current predicament and the extent to which they are more likely in the middle of a shift in ideas and power than at the end of any downturn. Perhaps the most important thing to bear in mind about the current downturn is that, as the saying goes, “It’s not your father’s recession.”
Since the end of World War II, most recessions have been “man made". They were usually brought on deliberately by policy itself, in order to wring an inflationary psychology out of the system. What governments engineered by raising interest rates, taxes, and cutting spending, governments could just as easily undo by turning on the printing presses, cutting taxes, and increasing spending. Similarly, where financial panics happened as in 1986’s Black Monday or in the aftermath of the 1998 collapse of Long Term Capital Management policymakers knew what to do: flood the markets with liquidity and wait for the “animal spirits” of the market to turn around.
So what makes this downturn so different? Why have the repeated attempts at fiscal stimulus and monetary easing failed to revive demand?
Understanding this requires some historical perspective, and a recognition of the consequences of thirty years of wage stagnation in the United States. Indeed, consider that in 1978, US average hourly earnings stood at $8.96 in real terms. In 2008, average hourly wages stood at $8.57. In effect, after thirty years of rising productivity and education levels, American workers had less to show for their efforts. Where did the extra money go? Economist and New York Times columnist Paul Krugman argued that, for the past thirty years, the US has been mired in a “Great Divergence,” marked not simply by stagnant wages but rising income inequality, as from 1980 to 2005, more than 80% of total increase in income went to the top 1%, and wages as a percentage of GDP have broadly fallen relative to corporate profits. How did Americans continue to consume at such high levels? They borrowed with increasing frequency into the 21st century. As former US Federal Reserve chairman Alan Greenspan noted in his memoirs: “Consumer spending carried the economy through the post-9/11 malaise, and what carried consumer spending was housing… Capital gains, especially gains realised in cash, began burning holes in people’s pockets.” Indeed, as consumer credit became a substitute for rising wages, consumers in 2006 put $51 billion in fast food on their credit cards! Explaining these changes is, of course, the subject of much debate. While many causes for the financial crisis have been suggested, with varying weight assigned by experts, the United States Senate issuing the Levin–Coburn Report found "that the crisis was not a natural disaster, but the result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.
